Let's talk about two stock market charts. Don't worry, it won't take long. The pictures may say a couple of thousand words, but I'll keep my commentary pretty brief.
The long-term view
The blue mountain in the background is the total return for the popular S&P 500 (^GSPC +1.46%) market index, starting at the turn of the millennium and ending with New Year's Eve, 2023. The index gained an average of 7% per year over this period. It may not sound like much, but those modest increases added up to a 411% total return in 23 years. Not too shabby, given the fairly modest annual returns, which were below the S&P 500's long-term averages, not to mention the 13% average returns it saw in the last 10 years.
The green overlay shows you the same index's full-year returns in each year along the way. This includes the dot-com bubble popping and the 9/11 attacks. The deepest annual dip sprung from the Lehman Brothers subprime mortgage meltdown in 2009. The inflation-fighting measures of 2022 felt terrible at the time, but they don't look too painful in this perspective.
And all of these temporary dips were followed by good years -- not necessarily right away, but consistently enough to quintuple your average stock market investment over time. You did even better if you bought your shares of an S&P 500 index tracker such as the Vanguard S&P 500 ETF (VOO +1.41%) or SPDR S&P 500 ETF Trust (SPY +1.46%) in the troughs of 2003 or 2009, but the overall returns would be fantastic by now even if you made a big investment at the local peaks in 2000 and 2007 -- arguably the worst times to get into the market in this period.
Time and patience can heal all market wounds.
SNPINDEX: ^GSPC
Key Data Points
What about daily moves?
Next, I'll zoom in a bit. The next chart does the same thing, but over the last year.
As before, the light blue mountain shows the S&P 500's total returns across the whole period. The green squiggles represent each day's gain or loss along the way:
The numbers are smaller because you're looking at a shorter time period. There are 252 trading days in this chart, so the average daily return was roughly 0.1%.
The big dips are more modest, of course. The fallout from higher Japanese interest rates last week was just a 3% market dip, for example. Those pinches can sting, but the S&P 500 has already sprung back from last week's string of price drops. And those itty-bitty daily average moves of one-tenth of a percent added up to a pretty impressive 30% total return in 52 weeks. Math for fun and profit!
Just like with the 23-year chart, this single-year review shows that short-term market moves don't really matter in the long run. If anything, you might want to look out for sudden market spikes so you can hold off on any trades you might have been planning, and for surprising drops so you can take action while prices are low.
Lessons learned from this chart review
Keeping up with market news can be fun, and you'll learn valuable lessons such as financial analysis and long-term pattern recognition that way. Just don't worry too much about the puts and takes of any specific market day. Full years are more important, and the real secret to wealth-building success lies in the compound returns of patient ownership over many years.
Time is your best friend on Wall Street, even if you can't lock down a steady stream of large short-term returns. The S&P 500 index funds I mentioned earlier can help you do it with a generous dose of risk-dampening diversification. Buy and hold, my friend. Buy and hold.
